Lotus Resources Doubles Down on African Uranium with Strategic Botswana Acquisition

• Lotus Resources, which owns the Kayelekera Uranium mine in Malawi, southern Africa, is set to acquire all shares in A-Cap Energy.
• A-Cap Energy owns the Letlhakane project located in Botswana, a Greenfield project with a substantial resource base, making it a primary attraction for Lotus Resources.
• While Lotus's Kayelekera project has a solid 10-year production, there is interest in expanding its resource and extending its life. The acquisition of the Letlhakane project, with its similar geology, provides this growth potential.
• The Letlhakane project boasts a large resource of 190 million pounds, albeit at a lower grade than Kayelekera.
• The acquisition is strategic, ensuring a broader resource base and paving the way for a more significant market presence in the uranium space.

Australian uranium developer Lotus Resources is making a bold move to rapidly expand its project pipeline and resource base, announcing a merger with fellow ASX-listed A-Cap Energy. The deal will see Lotus acquire A-Cap’s flagship 190Mlb Letlhakane Uranium Project in Botswana, more than doubling its total attributable uranium resources overnight.

With the uranium market showing signs of a brewing supply-demand imbalance, the acquisition gives Lotus unrivalled leverage to a rising uranium price among its listed uranium peers. Letlhakane’s low-grade but very large resource also provides Lotus with a long-term development option that can be funded through low-cost, lower-risk expansions over time.

Transformational Deal Creates New African Uranium Force

Valued at around A$25 million, the all-scrip merger will see A-Cap shareholders receive 1 Lotus share for every 3.54 A-Cap shares owned. These value A-Cap at around 5.2c per share, a 20% premium to its last close prior to the deal announcement.

The merger will create a new uranium player, with a dominant 79% shareholding by existing Lotus shareholders. The remaining 21% will be owned by incoming A-Cap shareholders, including a 7.5% stake held by major A-Cap shareholder Zhejiang Shangke Chemical Co.

Importantly, the deal enhances Lotus’s financial capacity. With A-Cap shareholders keen to realize value after a long wait on Letlhakane, Lotus avoids paying a hefty premium or issuing excessive equity. It can instead focus capital on advancing its flagship Kayelekera Uranium Mine in Malawi, while leveraging Letlhakane’s extensive historical studies to further enhance the economics.

Letlhakane Brings District-Scale Upside in Stable Botswana

Located near Botswana’s second largest city of Francistown, the Letlhakane Uranium Project covers a massive tenement position of some 2,800km2. This makes it one of the largest undeveloped uranium deposits in the world, carrying a resource of 190Mlb grading 320ppm U3O8.

Despite its size, Letlhakane remains underexplored and open in multiple directions. Lotus sees excellent potential for resource expansion through further drilling, particularly into shallower portions of the deposit that remain sparsely tested. While lower grade than Lotus’s Kayelekera deposit, Letlhakane’s minimal overburden also allows simple and low-cost open cut mining methods. Lotus will look to reduce costs further through beneficiation methods successfully used elsewhere in Africa, with potential to increase head grades by 50-100%.

Botswana is considered one of Africa’s most stable and mining-friendly jurisdictions. With low population density and established infrastructure nearby, Lotus expects low hurdles for permitting and development of the project once uranium prices justify a construction decision.

De-Risked Development Pathway for Letlhakane

A definitive feasibility study has already been completed on Letlhakane by A-Cap in 2015. This envisaged a 2Mlb pa conventional acid leach operation over 16 years, producing 30Mlb at total cash costs of $31/lb after by-product credits.

However, the studied development pathway involved a high upfront capex of $281M and relied on uranium prices above $70/lb. This was already unfeasible in 2015, and rendered completely uneconomic after the Fukushima uranium market crash that same year.

Lotus will look to substantially improve the economics by adopting a lower-risk, lower-cost staged ramp-up strategy. This takes advantage of Letlhakane’s sheer scale, allowing higher-grade zones to be targeted early before expanding production in sync with uranium price rises. The already-earned mining licenses provide security of tenure across the entire resource area.

Lotus will also revisit the processing method, considering lower-cost heap leaching options used successfully on similar deposits in Namibia. Further opportunities exist to leverage knowledge gained from Kayelekera to optimize mine design and lower operating costs.

Importantly, Lotus does not have to foot the entire development bill on its own. With Kayelekera poised to generate strong cashflows at current uranium prices, Lotus can fund Letlhakane expansions from internal cash without major equity dilutions.

Kayelekera Remains on Track Despite Letlhakane Addition

While providing longer-term upside, Lotus stresses that Letlhakane does not divert focus away from getting its Kayelekera Mine back into production. Kayelekera is considered a far more advanced and “oven-ready” project, with existing infrastructure in place and all permitting secured.

Located in northern Malawi, Kayelekera hosts a world-class resource of 53Mlb grading 890ppm U3O8. As a previously operating mine, it benefits from an intact processing plant, tailings facility, and established site infrastructure. After being placed on care & maintenance in 2014, Lotus completed extensive refurbishment and optimization studies on the mine. This defined a lean restart plan targeting 3.5Mlb pa over 7 years, followed by low-cost acid leaching of stockpiled ores.

With capital costs of just $81M and cash costs projected below $35/lb, Kayelekera offers one of the most attractive restart propositions among undeveloped uranium projects globally. Lotus is looking to finance construction in 2023 and begin production within 12 months.

The key focus over the next 6-12 months will be securing capital and locking in supply contracts with utilities at favorable long-term prices. This will provide revenue certainty and maximum balance sheet protection when ramping up Kayelekera in a volatile uranium price environment. Kayelekera is projected to deliver strong cash flows even at current spot uranium prices of around $50/lb.

Attractive Entry Point with High Leverage to Uranium Upswing

After retreating since early 2022, uranium equities now appear poised for renewed interest from investors looking to position ahead of the market tightening. With demand recovery accelerating, inventories declining, and supply growth stagnant, the prevailing ~$50/lb spot price remains well below most companies’ production costs.

As utilities re-enter long-term contracting cycles, a self-fulfilling sentiment shift could see uranium prices rise rapidly to incentivize new mines. With few “shovel-ready” projects globally, those with permitted and refurbished capacity like Kayelekera are best leveraged for a bull market. The Letlhakane acquisition propels Lotus into a clear leadership position among listed uranium developers in terms of attributable resources. But unlike many uranium explorers, Lotus now has two advanced, de-risked projects capable of providing low-cost production growth as prices recover.

Trading at a modest ~A$90 million market capitalization, Lotus offers outstanding leverage to a rising uranium price. Assuming conservative long-term prices of US$65/lb, Kayelekera alone could generate ~$600M in free cash flow over 10 years from 2024. Unlocking further value from Letlhakane would drive upside well beyond this. With key permits secured, established infrastructure, and modest restart costs, Kayelekera also carries lower project execution risk than unbuilt projects reliant on elevated uranium prices for viability.

Lotus offers a unique uranium exposure blending near-term cash flow potential with longer-term resource upside. Its recent acquisition cements Lotus as the go-to leverage play on the uranium price among ASX-listed developers. As Kayelekera progresses towards production, investors can expect strong share price gains as Lotus’s platform of low-cost, de-risked assets becomes increasingly sought after.

The Investment Thesis for Lotus Resources

Leverage to Rising Uranium Prices

With uranium demand increasing and supplies tightening, spot prices are expected to rise. Lotus offers leverage to higher prices through its low-cost production portfolio.

Near-Term Production Potential

The Kayelekera mine is shovel-ready with permits and infrastructure in place, providing potential cash flows in the short term as uranium prices recover.

De-Risked Growth Pipeline

Letlhakane gives significant long-term resource upside, but initial development phases can be funded from Kayelekera cash flows, lowering risk.

Stable Mining Jurisdictions

Operations located in Malawi and Botswana provide relative stability compared to many mining jurisdictions.

Financial Firepower for Development

The merger enhances Lotus's balance sheet and avoids excessive dilution or acquisition costs. This provides funding flexibility.

Advanced Projects with Upside

Both Kayelekera and Letlhakane have significant potential for resource expansion and economic improvements.

Undervalued Compared to Peers

Trading at a modest valuation with robust projects, Lotus offers strong upside potential as value is crystallized.

Experienced Management Team

Proven experience in uranium project development helps de-risk execution.

Early Mover Advantage

With few advanced uranium projects globally, Lotus is positioned to benefit from a tightening market ahead of potential competitors.

Lotus Resources offers investors an attractive way to gain exposure to the accelerating uranium bull market, with a blend of near-term cash flow potential and longer-term resource upside. The recent value-accretive merger and advanced status of its assets makes Lotus a compelling investment case in the uranium sector.